State set to reap significant interest income on road-lease funds

INDIANAPOLIS (AP) Â? Indiana's 75-year lease of the Indiana Toll Road to a foreign consortium has delighted state officials, who are eager for the payout to start generating interest income.

Under the lease, the Spanish-Australian consortium will make an upfront payment of $3.8 billion Â? money that's projected to net about $223 million in interest in just the first year.

"It's unbelievably exciting," said Sen. Tom Wyss, R-Fort Wayne, who admitted having initial reservations about the plan to lease the 157-mile toll road to pay for new highway projects.

State officials have already committed hundreds of millions more than the $3.8 billion check they will get June 30 from Cintra of Spain and Macquarie Infrastructure Group of Australia.

But State Budget Director Chuck Schalliol told The Journal Gazette that the big payout will make so much in interest the state could be sitting on a $1 billion cushion in 10 years, even after building hundreds of new roads.

"We ought to be able to do all of it," he said.

Schalliol provided estimates to The Journal Gazette that show the state spending $4.3 billion by 2016.

The interest the $3.8 billion payout will bring in over the years is significant. At a 6.9 percent rate Â? the same that State Treasurer Tim Berry achieved last year on investments Â? the state will reap $223 million in interest the first year alone.

Overall, the next decade will result in $1.4 billion in interest.

The first year is the largest in terms of expenses, as the state is expected to spend more than $1 billion in payments to northern Indiana's toll road counties, retiring the toll road bonds and sending money to other development entities.

The estimated interest goes down each year after that as construction spending is expected to ramp up and there is less money to invest.

Yet at the end of 2015 Indiana would still have $1 billion in the bank. And that doesn't include $500 million set aside in for a trust fund generates about $200 million in interest every five years that can be spent by highway officials.

Wyss noted that the creation of that fund by Sen. Robert Meeks, R-LaGrange, also ensures that the state has money for future generations when the lease is up in 2081.

"It depends on the speed with which they build. If they build rapidly to satisfy their interests then the interest evaporates," he said. "And it's hard for me to believe that politicians won't spend all that in 10 years."

Schalliol concedes several things could tinker with the projections, including a drop in interest rates or an increase in the cost to build highways. Adding projects to a lengthy 10-year construction plan could also change the numbers.

Now that the additional cash has been secured Â? pending a June 30 financial closing of the deal with a Spanish-Australian venture Â? Indiana Department of Transportation officials are busy adjusting their priorities.

For instance, at the urging of Gov. Mitch Daniels, INDOT moved up the start of work to turn U.S. 31 between Plymouth and South Bend into a limited-access highway to as early as 2008.

That could help Rep. Jackie Walorski, R-Lakeville, who voted for the bill that authorized the toll road deal even though her constituents Â? who've long dreamed of a U.S. 31 upgrade Â? didn't approve.

Daniels, meanwhile, contends that even those districts whose legislators did not support the plan will get showered with cash.